An Expense Cap Increase for the State Pension Agency

The Pension System Board of Trustees recommends 3 options for changing the cap on the Agency’s administrative expenses and legislative leadership chooses to introduces 1.

The Joint Pension’s Committee Annual Report included information regarding the formula used to calculate the administrative expenses cap for the State Retirement Agency. According to the Report, for the past 14 years, the cap has been calculated incorrectly. The staff recommendation in the Report was to codify the existing practice to permanently increase the level of the cap.

In addition to that potential increase, to alleviate the expected stress of funding increases to the State Retirement Agency’s 2019 operating budget, the State Pension Board offered the Legislature three possible legislative solutions for an additional increase to the cap. The expected stress of funding increases stem from the third phase of the Agency’s technology and operational re-engineering strategy.

The options were stated in the Report as follows:

Option A: In keeping with historical precedent with regard to funding information technology projects (Chapter 429 of 1993, Chapter 366 of 1995, and Chapter 157 of 1997), the Legislature could introduce legislation that would provide for a one-time increase to the administrative expense cap through fiscal year 2022 to address the financial needs of these projects. The Board believes that a cap of .26% would accomplish this objective.

Option B: The Legislature could introduce legislation that would exempt funding of MPAS-related projects, or possibly even Major Information Technology Development Projects in general, from the Agency’s administrative expense cap.

Option C: The Legislature could introduce legislation that would permanently increase the Agency’s administrative expense cap by a certain amount that would be sufficient to cover major information technology projects and other significant expenses that may arise in the future. The Board believes that a cap of .26% would accomplish this objective.